Patenting in the shadow of independent discoveries by rivals
Document Type
Journal article
Source Publication
International Journal of Industrial Organization
Publication Date
1-1-2012
Volume
30
Issue
1
First Page
41
Last Page
49
Publisher
Elsevier BV
Keywords
Patenting decisions, Patents, Secrecy, Independent discoveries
Abstract
This paper studies the decision of whether to apply for a patent in a dynamic model in which firms innovate stochastically and independently. In the model, a firm can choose between patenting and maintaining secrecy to protect a successful innovation. I consider a legal environment characterized by imperfect patent protection and no prior user rights. Thus, patenting grants probabilistic protection, and secrecy is effectively maintained until rivals innovate. I show that (1) firms that innovate early are more inclined to choose secrecy, whereas firms that innovate late have a stronger tendency to patent; (2) the incentives to patent increase with the innovation arrival rate; and (3) an increase in the number of firms may cause patenting to occur earlier or later, depending on the strength of patent protection. The socially optimal level of patent protection, which balances the trade-off between the provision of patenting incentives and the avoidance of deadweight loss caused by a monopoly, is lower with a higher innovation arrival rate or a larger number of firms.
DOI
10.1016/j.ijindorg.2011.05.002
Print ISSN
01677187
Publisher Statement
Copyright © 2011 Elsevier B.V.
Access to external full text or publisher's version may require subscription.
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Zhang, T. (2012). Patenting in the shadow of independent discoveries by rivals. International Journal of Industrial Organization, 30(1), 41-49. doi: 10.1016/j.ijindorg.2011.05.002